Commercial Law: Liability of Leilani Gallery Ltd and Teanau's Painting

This commercial law case study analyzes the liability of Leilani Gallery Ltd regarding the purchase of a painting. The central issue revolves around whether the company is obligated to pay Teanau $2 million for the painting 'Lady with Katipo.' The analysis references Section 190 of the New Zealand Companies Act 1993, which outlines the director's ability to rely on expert advice. The case examines the authority given to Alejandro, an expert hired by Leilani, and his actions in purchasing the painting without adhering to the set financial limits. The study applies legal precedents, including Director of Public Prosecutions v Kent and Sussex Contractors Ltd and Lion Nathan v Lee, to determine that Alejandro exceeded his authority and violated Section 190. The conclusion states that Leilani Gallery Ltd is not liable to pay Teanau due to the breach of contract by Alejandro.

Running head: COMMERCIAL LAW
Commercial Law
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Issue:
The issue associated in this case is whether Leilani Gallery Ltd is liable to pay Teanau an
amount of $2m for the painting Lady with Katipo.
Rule:
According to Section 190 of the New Zealand Company Act 993, the director and the
sole shareholder of a company is at the authority to rely upon certain statements, reports and
financial data (De Silva, Stratford & Clark, 2014). In this regard, the director of the company is
at the authority to rely upon the information provided by a professional and in some cases can
rely upon expert advice (Koerniadi, Krishnamurti & Tourani-Rad, 2014). It is noteworthy to
mention here that Section 190 of the New Zealand Companies Act 1993 provides the authority to
a director of a company to hire an employee, a professional expert and directors for the purpose
of obtaining information (Lally & Prasad, 2014). Section 190 states that in certain cases, the
director can rely upon a professional expert or adviser which according to the knowledge of the
director appears to be within the professional competence of such individual (Reddy, Abidin &
You, 2015). However, it is important on the part of such professional experts to act in the best
interest of the company (Lally & Prasad, 2014). In this regard, Section 187 requires the directors
to act in good faith and by acting towards the best interests of the company (Koerniadi,
Krishnamurti & Tourani-Rad, 2014). It is worth noting that it is crucial on the part of the director
to act in a way which in his opinion is for the best interests of the company (De Silva, Stratford
& Clark, 2014).
In this regard, it is noteworthy to mention here that the directors must employ their
powers for the best interest of the company however while relying upon an professional expert it

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is important to provide them with limited authority. In Director of Public Prosecutions v Kent
and Sussex Contractors Ltd it was observed that the company was held liable for the acts of a
professional expert. It was observed in the abovementioned case that the company had to
compensate as a result of the wrong information provided by the transport manager who was
provided with an authority to act on behalf of the company. However, in Lion Nathan v Lee it
was observed that the directors were not liable for the acts of the different interests groups who
were given an authority to act on behalf of the company.
In Peoples Department Stores Inc v Wise it was observed that the company was carrying
out a joint venture business involving the shareholders. It was observed that as a result of the
activities of the shareholders the company suffered huge losses.
Application:
In the present case study it can be observed that Leilani has created a company of her
own and in such process hired Alejandro as an expert to work on behalf of the company.
However, Alejandro was given the authority to purchase paintings having a limit of $50,000.
However if such amount exceeds then he is supposed to seek permission from Leilani to get
further authority on this regard. It can be observed that Alejandro purchased the painting “Lady
with Katipo” from Teanau without prior permission from Leilani. In this regard it is noteworthy t
mention here that Alejandro has not acted in the best interests of the company and thereby has
violated the provisions of Section 190 of the New Zealand Company Act 1993. It was essential
on the part of Alejandro to seek prior permission before purchasing the painting from Teanau as
it worth more than $50,000. It was already stated by Leilani that Alejandro is not at the authority
to purchase painting which exceeds the amount of $50,000. In case the amount exceeds,

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Alejandro was entitled to seek permission from Leilani. It can be stated that Alejandro should
have consulted the director and sole shareholder of the Leilani Gallery Ltd as he always had
when he purchased paintings that cost over $100,000. In this regard it is worth mentioning that
the provision of Section 190 of the New Zealand Companies Act can be rightly applied in the
present case study where the director of the company possesses certain rights to rely upon a
professional expert however in the present case study such expert has caused breach of contract
by violating Section 190.
Conclusion:
Therefore, Leilani Gallery Ltd is not liable to Teanau an amount of $2m for the painting
“Lady with Katipo”.

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References:
De Silva, T. A., Stratford, M., & Clark, M. (2014). Intellectual capital reporting: a longitudinal
study of New Zealand companies. Journal of Intellectual Capital, 15(1), 157-172.
Director Of Public Prosecutions V Kent And Sussex Contractors Ltd: 1945.
Koerniadi, H., Krishnamurti, C., & Tourani-Rad, A. (2014). Corporate governance and risk-
taking in New Zealand. Australian Journal of Management, 39(2), 227-245.
Lally, M., & Prasad, V. (2014). New Zealand finance companies and risk premiums. Accounting
& Finance, 54(4), 1207-1229.
Peoples Department Stores Inc (Trustee of) v Wise, 2004 SCC 68.
Reddy, K., Abidin, S., & You, L. (2015). Does corporate governance matter in determining CEO
compensation in the publicly listed companies in New Zealand? An empirical
investigation. Managerial Finance, 41(3), 301-327.
Lion Nathan v Lee (1997) 8 NZCLC 261.